Tax Analysts Blog

When Is a “Fee” Actually a Tax? When Politicians Say It Isn’t

Posted on Dec 17, 2013

Politicians are, by nature and necessity, truth-challenged. It's tempting to call them liars, but that would be harsh, so let's stick with the euphemism. After all, that's what politicians do when it comes to taxes.

As everyone knows, the "breakthrough" budget deal now pending in the Senate includes no new taxes. We know this because Paul Ryan told us so. "The budget agreement does not raise taxes," declares the House Budget Committee's official FAQ on the budget deal. "There are no amendments to the Internal Revenue Code, and there are no increases in statutory or effective tax rates."

Good to know. But the agreement does raise new revenue from "user fees," including ones tied to pension benefit guarantees, conservation planning, customs enforcement, and aviation security.

This last fee, often called the airline passenger security fee, has drawn some special scrutiny, probably because lots of people fly and no one likes the Transportation Security Administration. The aviation fee is definitely not a tax, and we know this (again) because Paul Ryan told us so. The fee covers only part of the total cost of airline security screening, he points out. Even after it goes up, it will still pay only about 43 percent of the Transportation Security Administration's overall tab.

OK, so maybe you're still skeptical. But if you won't believe Ryan, how about Grover Norquist? The unelected GOP arbiter of all things taxlike certainly doesn't like the aviation fee, but he doesn't think it's a tax. "This fee straddles the line between a tax increase and a user fee without technically crossing into tax hike territory," he assured the nation.

Also good to know.

Snarkiness aside, the aviation fee really isn't a tax. As Ryan points out, it meets the definition of a user fee provided by the Congressional Budget Office:

    Money that the federal government charges for services, or for the sale or use of federal goods or resources, that generally provide benefits to the recipients beyond those that may accrue to the general public. The amount of a user fee is typically related to the cost of the service provided or the value of the good or resource used.
Taxes, by comparison, are not tied to particular services and therefore can't be avoided by simply declining to use these services. Taxes, according to the CBO, are "funds collected from the public that arise from the government’s exercise of its sovereign or governmental powers." You pay taxes because you have to, and it doesn't matter whether you want the services they're paying for or not.

The CBO definitions are broadly accepted by economists and budget experts, and they clearly establish the airline security fee as a nontax. But it seems safe to say that this distinction is not particularly meaningful beyond the Beltway. As Roberton Williams of the Tax Policy Center recently pointed out, "I pay the TSA ticket fee because I choose to fly. How does that differ from my paying the gasoline tax because I choose to drive a gas-powered car?"

Obviously, it doesn't. But these semantic distinctions can't be entirely empty or politicians would stop using them. Yet efforts to sidestep the "tax" label are as old as the republic. They've been especially popular since the Reagan administration, when the Gipper himself popularized the term "revenue enhancement" to describe what most people would call a tax increase. As I explained in a 2011 article for Tax Notes, credit for actually inventing that particular euphemism belongs to Larry Kudlow, economist and media personality.

At the time, Kudlow was a U.S. Treasury official looking for some way to square Reagan's antitax politics with his pro-tax policies. Some careful rewording seemed in order. ""There's no better way to sell economic theory than by the euphemistic route," he later confided to The New York Times. "I gave them another one, 'receipts strengthening.'"

Kudlow's rebranding didn't save the Reagan Administration from a lot of snickering (and Democratic finger-pointing). But it did start Republicans down a long road of nontax revenue raising. A road they're still on today.

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